October 5, 2007 / 2:32 PM / 12 years ago

UPDATE 6-Ecuador pushes contract talks after state oil grab

(Adds details from oil minister, Correa, debt plans)

By Alonso Soto

QUITO, Oct 5 (Reuters) - Ecuador on Friday pushed for talks with oil companies over their contracts, a day after President Rafael Correa sharply raised the government’s share of oil revenue in a signal of more state control over the economy.

The shock announcement followed similar moves by his left-wing ally, Venezuelan President Hugo Chavez, who has used soaring crude prices to renegotiate better terms for his government and nationalized multibillion-dollar oil projects.

Correa, armed with a strong mandate from an election win this week, on Thursday decreed companies such as Spain’s Repsol (REP.MC) and Brazil’s state-owned Petrobras (PETR4.SA) to hand over 99 percent of extra oil revenue they earn when oil prices climb above an agreed benchmark price.

They had previously paid only half of those revenues.

“They cannot talk about confiscation when the oil is ours,” Correa said during a Friday cabinet visit outside of Quito. “For years these companies have made profits of 200 percent and 300 percent and some don’t even pay taxes,” he said.

Oil Minister Galo Chiriboga said contract talks would start with the companies on Monday.

After talks with the government in Quito, Brazil Foreign Minister Celso Amorim said Petrobras wanted to stay in Ecuador and, generally, Brazilian companies remained positive about investing in South America’s No. 5 petroleum producer.

Correa pledged to be flexible in negotiations, he added. Brazil has already been the victim of nationalizations of gas fields by Correa’s ally Bolivian President Evo Morales.

Repsol in Madrid downplayed the impact of the move, saying its Ecuador production represented 1 percent of its output.

Still, companies were caught off guard by a decision the government says will cost them about $600 million a year, which the economy minister said would allow the state to cut its planned debt requirements for next year.

The head of an Ecuadorean association of private oil firms, Rene Ortiz, told Reuters the unilateral move was “equivalent to a nationalization.”

Chiriboga said on average the benchmark price Ecuador has agreed to is around $23 per barrel, meaning the companies now must hand over extra revenue from sales above that value.

Ecuador’s crude averages above $60 a barrel.

SIGN OF THE TIMES

Correa, a U.S.-educated economist, is already spooking Wall Street with populist rhetoric and talk of debt restructuring as he joins Andean allies in a shift to the left.

Chavez seized the last foreign-run oil operations this year, and Bolivia’s Morales last year shocked investors by taking over the natural gas sector.

Thursday’s measure came after Correa won a mandate in Sunday’s vote for an assembly that he wants to increase the state’s economic role and emasculate political elites.

Chiriboga says the government wants foreign companies to switch from current deals, which allow firms to have part of the oil they extract, to new contracts where the state will sell the crude itself and pay the companies a service fee.

Private oil companies extract nearly half of Ecuador’s average daily output of around 530,000 bpd.

Ecuador’s growth is sluggish and oil investment is on the decline, which may curtail Correa’s leftist drive.

But Wall Street fears more moves against investors.

“The sectors that in our view are now most at risk are: wireless telephone companies, banks, media groups, and the mining sector,” senior economist at Goldman Sachs, Alberto Ramos, wrote in a research note from New York.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below